On the Business Case for Renewables (and Why It’s so Strong)

I’m not a CEO and you won’t find me hocking financial self-help books at the airport, but there are three core tenets of business success that I hope we can agree on: keep your product affordable, minimize your exposure to risk, and keep your customers happy.

If you’re an electric utility, sticking to these core tenets is particularly tricky. Fortunately, there’s one investment decision that can keep you on track: renewable energy.

Renewables are cheap today, tomorrow, and for the long haul

The cost of renewable energy resources has fallen dramatically in recent years, making them an attractive investment option for utilities.

Take, for instance, the transition underway in two states here in the Midwest. In May, Michigan’s DTE Energy—the seventh largest utility in the US—announced a forward-looking plan that would eliminate its use of coal and move the utility to a mix of about 40 percent renewables, 40 percent natural gas, and 20 percent nuclear by 2050—cutting the utility’s carbon emissions by 80 percent. DTE CEO Gerry Anderson proclaimed “Not only is the 80 percent reduction goal achievable—it is achievable in a way that keeps Michigan’s power affordable and reliable.”

In Minnesota, Otter Tail Power’s latest plan for meeting energy demand also calls for a shift to renewable energy—more than 30 percent by 2030. And this on the heels of the state’s largest utility, Xcel Energy, receiving approval late last year for its least-cost plan that includes 40 percent renewable energy in the same timeframe.

Both of these plans would take the utility well beyond what’s required under Minnesota law as renewable energy investments are no longer about regulatory compliance, but about keeping electricity prices low in a rapidly changing electricity sector.

Renewables provide certainty in a world of uncertainty

Let’s put ourselves in the utility’s shoes for a moment. We’re trying to figure out how to keep the lights on, make smart investments for our shareholders and customers, and avoid a lot of political drama. And we’re trying to do that in a very uncertain world: how much will fuels cost five or ten years from now? What regulations will come and go? How much demand for electricity will there be?

Where can a utility invest to minimize the risks of an uncertain future?

Renewable energy.

Fossil fuel investments pose a number of risks for utilities because of uncertainty about future fuel costs, regulatory requirements, and energy demand. Renewable energy resources offer a low-risk option for investment, helping to protect investors and consumers.

Utilities are now realizing that renewable energy is a low-risk investment that can help maintain stable rates and avoid unexpected costs down the road. In fact, wind and solar resources are some of the lowest-risk options for meeting electricity demand. With renewable energy, there’s no risk of higher-than-expected fuel prices (because the wind and sun are free), little risk of costs to comply with unanticipated environmental regulations (because wind and solar power have relatively little environmental impact), and little risk of over-investing and being stuck with stranded assets (because wind and solar can be added in small increments and installed relatively quickly).

All of this makes renewable energy an attractive investment for utilities looking to minimize their exposure to risk.

More and more large utility customers are seeking access to renewable energy, pushing utilities to ramp up investments in these resources.

Utilities are responding with new products to meet the growing corporate demand for renewable energy. In Michigan, the state’s largest utility, Consumers Energy, recently proposed a new large customer renewable energy pilot program that will allow corporate customers to power their companies with renewable energy.

The new program comes in direct response to a request from telecom company Switch, Ltd., whose new Michigan data center will be powered 100 percent from new wind projects. In its filing, Consumers Energy stated that in a survey of its large business customers, more than half expressed interest in greater access to renewable energy.

More than 15 states now have a way to facilitate corporate renewable energy purchases through their utilities. And it’s a smart move by utilities looking to retain customers and attract new business.

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